Oil Continues To Crash After EIA Reports Biggest Inventory Build In 34 Years

After the API shocked markets by reporting a massive 9.3-million-barrel increase in U.S. inventories yesterday, the EIA added insult to injury, saying inventories instead went up by 14.4 million barrels in the week to October 28, reaching 482.6 million barrels. The silver lining is that the total is within the upper limit for the time of year, according to the EIA data.

We suspect the markets won’t find much in the way of this silver.

Last week, the authority reported a meager 600,000-barrel decline in crude oil stocks, which despite its meagre size, managed to sway the market, pushing up benchmark prices.

In other news, in the seven days to October 28, gasoline inventories experienced a 2.2-million-barrel draw, on top of a 2-million-barrel decline for the previous week. They are still above the maximum for this time of year.

Earlier this week, gasoline prices in the U.S. got a 10-percent push after an explosion at Colonial Pipeline’s Line 1 in Alabama that caused one fatality. The accident happened less than two months after the pipeline operator was forced to shut down Line 1 because of a leak, sparking a gas-shortage panic in the East Coast.

Refineries, operating at 85.2 percent of capacity, processed 15.4 million barrels of crude in the reporting period, churning out 9.8 million barrels of gasoline and 4.7 million barrels of distillate fuel daily.

The EIA’s report is watched even more closely than normal amid shaky markets caused by growing doubts that OPEC will manage to hammer out an output freeze deal. In addition to Iraq’s insistence to be exempted from any such deal because of its urgent need of oil revenues to continue fighting IS, news came that Libya and Nigeria are quickly increasing their output, seeking to make up for lost revenues.

Hopes are dwindling that even if an agreement is reached, and even if Russia joins it, it would do little to restore the market balance, as Libya and Nigeria – both already exempt from the freeze talks – added a combined 800,000 barrels to global oil supply last month.

Brent crude traded at US$46.87 a barrel at the time of writing, down 2.6 percent, and WTI was at US$45.31, down 2.91 percent.

Can anyone explain me in very basic context, why in this case demand doesn't control supply? I really don't understand, who produces the oil if there is not enough demand on the market. Who is importing / buying if they can't sell it ? If I as a producer make product that no one wants to buy I simply produce them less or none.

Meremortal on November 02 2016 said:

sumpfighter: Supply and demand are in balance at today's price, like always. "Balance" moves every day, one way or the other, depending on future speculation on supply and demand.

Oil is one of our most pure markets now as the suppliers are many and the OPEC cartel is broken. Enough producers are profitable at today's prices to continue production and so they are doing so. Those that aren't profitable have or are cutting back.

The largest 7 private producers in the world combined only control 3% of the market. Governments control most production, and govts don't have to make constant profits like publicly held companies do.

Bill Simpson on November 02 2016 said:

@ sumofighter You can't control the flow of oil around the world that precisely. Oil is an enormous industry with scores of big players. It takes a month for a tanker to get from Saudi Arabia to Texas and unload. And if you think the price might go up, you order a lot while it is still cheaper. Several companies import crude oil into the US. They are probably not allowed to get together and fix the oil market. They could make a huge fortune by agreeing among themselves to create a fuel shortage. It would be like creating their own private OPEC. Imagine all the oil executives sitting around a big table and deciding how much of the market each would take. Then ordering less and less oil. Invest in oil companies if they can ever do that! It would be like owning a chunk of Standard Oil before the breakup, when Rockefeller was controlling most of the oil business inside the US. If the government didn't break Standard Oil up, it, and Shell, would probably own most of the world by now, including the governments.
The world uses nearly 90,000,000 barrels of oil every day. That is roughly 10,000 gallons every second. At $50 a barrel, it is worth $4,500,000,000 a day. You are talking a lot of money being paid to oil producers each day. But it is worth every penny. When people complain about the cost of gasoline, ask them if they have ever walked 15 miles that a gallon of gas can move them.

AriL on November 02 2016 said:

It's a lot more complicated than simple supply and demand. It has more to do with market share. There still is a demand just not high enough for there to be a bidding war. They are not producing at a loss just not as much of a gain as before.

Mike on November 02 2016 said:

If you are an oil producer and you still have high debt obligations, still need to finance operations, then you want to be producing as many barrels of oil as you can. You need that revenue to pay back your debt, finance operations, or whatever. Even if that means you're operating at a loss.

mark on November 02 2016 said:

What I don't understand is how the U.S. uses 19 million bbl of oil per day. Produces roughly 8 to 9 million a day imports 7 to 8 million a day and we have an inventory build of 14 million. Can someone splain it to me?

eddie on November 02 2016 said:

Producers don't turn wells off unless they are uneconomic with no near term probability of returning to profitability. The risk is managed by selling oil in advance through futures markets. If you turn off wells it can cost months worth of profits to restart, A deep ESP that doesn't start might cost 1/2 a million dollars to pull and replace and even pulling a shallow rod pump well is a ~$20K investment. There is also no guarantee you get your old production back and trouble shooting has a 50 to 75% COS on workovers. Additionally, supply chain for crude is complex as it depends on international shipping, pipelines, wars, producing facility reliability, refining reliability, weather etc. The two together mean weekly changes are notional at best. I like to treat EIA reports like points on a MACD plot and plot 4 week period against a 12 week period. Just like a MACD plot when short term crosses long term it is an early signal of a trend change.

chuckie on November 02 2016 said:

Simple. Imports at 8,995 mbpd were the highest in over 4 years and 1,620 mbpd over the prior 4-week average. Add that to a week that typically already has a seasonal build due to refinery maintenance, and you get a gigantic build. The real question is who's importing so much and why.

KilonBerlin on November 02 2016 said:

Wow,

most times when the "oil stocks" go up heavy, than in the same period of time the oil imports declines usually,

but this time the "net imports" (the important number) were even very high, there is often the case that for example for a few weeks import are "middle" and this makes the whole thing... something increased here, something a bit down here etc on the stocks,

but if I think now... it is the same now, just the other way around... net oil imports are extreme high, so over 14 million barrels could be added to the commercial stocks (SPR is steady, at least for now),

these over 14 million barrel increase in stocks comes from these record imports, it is/was the period when the oil price was sometimes close to 52$ and for brent it even was above 52$, now it lost again over 10% in the week, until now... India is now the main booster for oil demand, China will have propably "Peak Diesel Demand" in this year since coal transports (since most rails are not electrified Diesel-Electric trains are used, the 3-Gorges Damm, close of small/far away coal mines and new and more efficient power stations lead to a decline of coal demand from more than 4 billion tons (!), this is in kg: 4,000,000,000,000 kilogram! It was even above 4.1 billion with imports from Australia, Indonesia and I think China helped North Korea since North Korea was running like 3 hours a day electricity only in Pjöngjang, but the "brown coal" is there, just old equipment, really old, investments needed, and well, North Korea there is no risk of civil unrest or so, one of the last countries in the world if not the last in which something would happen, so Chinese help against a bit of the coal, power situation got better if you compare old "docus" from 2005-2009 and 2010 until most recent documentaries, the "funny" picture taken from the hotel, which is the only building except of Kim 2.0 dictators residence if he is in town, but he prefers a bit outside of Pjöngjang to live in a villa with at least 2 "military rings", a bit like Hitlers Headquarters, they always head 3 security zones with 2 checkpoints (one to enter zone 2, another to enter zone 1, and in zone 1 patrouls etc. were available...

soo lucky my mother left Poland only weeks before the war right was declared, but as a young woman for a solo trip to Hannover she was allowed, she did not return, it had no consequences for the family, but well if you wanted to visit the west, always only alone, and only if you had a clear file, since the Polish had some kind of intelligence service of course, and the Soviet Union had its people and buildings in Poland like in every country behind "the Iron Curtain" until the SU collapsed...

Tesla Motors for the win, natural gas or someone finds a way to burn gasoline in power plants and filter out most "bad stuff" which comes out if you fire a power plant with crude oil, or maybe refined gasoline, diesel, whatever is the best...

because in 2030 there could be like 100 million E-Vehicles on the roads... one 100 kWh load from Tesla Motors luxury cars is more than some single living persons here in Berlin, Germany use.... but the US is lucky again like with gasoline, it pays only very very low prices for electricity...... the only thing right now was the 1st October increase of 23 cent per gallon of gasoline in New Jersey and 27 cent per gallon for Diesel....

some "tank tourists" which only had to drive less than 5 miles to New Jersey from Delaware will stay now at home, so Delaware and New Jersey as states are happy with the increase... only customers will feel it or are feeling it right now^^

@sumofighter on November 02 2016 said:

@sumofighter:

The world is flooded with oil since Summer 2014 or even a bit earlier, it is because US made production levels not seen for over 3 decades and not far way from a new peak (the old one is 1970 with a bit over 10 million barrels per day), in Summer 2014 the US production climbed from a bit over 5 million or close to 5.5 million to over 9.5 million, also Canada with its heavy oil and oil sand reserves (gigantic, 1/3rd of the worlds oil sand in Canada, another 1/3 in Venezuela in the Orinoco-Basin and the rest all around the world),

they produced and even though Libya had its civil war and later (in the last 12 months) heavy conflicts, the Iraq and Syrian oil production were lamed, Iran had sanctions...

The Saudis increased production together with Qatar, Kuwait, United Arab Emirates to get the price down and "kill" the new Shale Oil, Fracking etc... since they need 50$ (now after selecting the best places I guess), usually it was more like 55$ minimum and 60$ to be sure to make no lose, but the OPEC thought it would take ~9 months until US production crashes, but only ~1 million barrel per day is gone now...

and in many OPEC countries (especially the non Arabic, mostly Venezuela) the money is going short... Putin with Russia as worlds largest producer said he would only reduce maybe if the OPEC would cut production...

they did not cut, they said they will freeze production on september levels, but than Iraq came with the fact they have a serious threat in their country to fight (IS/ISIL), which is correct, and they need every dollar they say (which is the easiest way), Iran says: We had just 4 years of sanctions, we need to catch up what we lost in the past ~1500 days... Libya comes back now after Ras Lanuf-Terminal was recaptured, so Libyan production could climb from 25 to 35% of pre-war levels quite soon to at least 50 or 55% of the pre-war levels and on long term and by destroying the rest of the enemy fighters, after this they could increaase production to far over 1 million barrels per day...

rjs on November 02 2016 said:

there's no supply and demand factors here; oil imports were up nearly 2 million bpd because all the ships that were stuck offshore by Matthew came in & unloaded at the same time... 2 million bpd times 7 days accounts for almost the whole increase..

now, what i want to know is what does "the total is within the upper limit for the time of year" mean?

inventories were at 450 million barrels at the end of last October, when we already had an oil glut...before that, they rarely topped 350 million at this time of year...how can you or the EIA call 482.6 million barrels "within the upper limit for the time of year" ?

Jack Ma on November 08 2016 said:

The inventory build is fake.

It is paper oil and the purpose of overstating real supply is to keep prices down. The Globalist want Russia as weak as possible before there NATO invasion into Western Russia. There are 300,000 NATO troops on high alert right now at the Russian boarder; sheep waiting to be slaughtered as cannon fodder. There is a Western media blackout about the failed dollar and the real reason for low oil prices and you are being distracted with the Soros election puppet show instead of real issues.

All Russia had to do to keep the peace was to be a good little Globalist puppet and give up sovereignty. Instead, we are headed for Dedollarization war now. We have Hillary, and they have a well seasoned chess master and a Russia czar. Do you feel safe?

Russia will destroy Europe and the West, and then continue to sell it's oil in Rubles and make more trade agreements with China with no dollar. This is a dollar war; a petrodollar war.